Stable exchange rate helps banks "win big" from foreign exchange business

The exchange rate stability helps banks to generate more revenue from foreign exchange business. Source: Internet.

There are banks that grow up to 3 digits

Statistics on the financial statements of banks for the second quarter and first six months of 2023 show that the foreign exchange business of banks is quite positive but differentiated, with some banks growing up to 3 digits but also some banks decreased slightly compared to the same period last year.

Specifically, in terms of growth, in the first 6 months of the year, OCB was the bank that recorded the strongest increase in net profit from forex trading in the system, up 427% over the same period last year, bringing in VND62 billion. Also with 3-digit growth was LPBank with an increase of 334%, reaching VND 164 billion in net profit and was the most positive growth segment in this bank's business. Profit from foreign exchange business of BaoVietBank also increased by 152% in the first 6 months compared to the same period last year, to 27 billion dong.

In the group of state-owned commercial banks, Agribank recorded the strongest increase in net profit from forex trading after 6 months when it increased by 124% compared to the same period last year, bringing in VND 1,270 billion. This increase is 21 times higher than the bank's core business, which is net interest income. At VietinBank, net profit from foreign exchange business increased by 47% over the same period last year, recording about VND 2,350 billion. BIDV earned nearly VND 1,500 billion from this segment, up 20.5% over the same period last year.

Vietcombank continued to be the bank that recorded the highest profit from foreign exchange business in terms of absolute value thanks to its advantage in foreign trade. In the first 6 months of the year, Vietcombank recorded nearly VND3,200 billion in net profit from foreign exchange business, up 6.4% over the same period last year.

Other private banks also reported strong growth in foreign exchange profits such as Vietbank up 86%, ACB up 70.6%, SHB up 67%, TPBank up 48%, Eximbank up 41%... over the same period year 2022.

However, in the opposite direction, there were also banks that went backward in foreign exchange business compared to the same period last year. For example, VietABank decreased by 76% compared to the same period last year, making a profit of only 1 billion dong. There are also Kienlongbank down 58%, SeABank down 40%, ABBank down 30%, MB down 26%, BVBank down 27%, MSB down 17%... over the same period last year.

In particular, there are 3 loss-making banks in this segment: Techcombank, VIB, and VPBank. VPBank lost 557 billion dong in foreign exchange trading after 6 months, while in the same period last year, it lost 250 billion dong. Techcombank also recorded a loss of more than 240.5 billion dong, while in the same period a profit of more than 1.27 billion dong. VIB lost 18 billion dong, but this is a positive figure compared to the loss of 168 billion dong in the same period last year.

To win big, you must have an advantage

Forex trading is one of the specialized operations of banks besides lending. Foreign exchange business at the bank not only buys/sells foreign currencies on demand, but banks also provide financial and monetary tools to help customers minimize the risk of exchange rate fluctuations. Banks also deploy many products and services to support import-export businesses such as trade finance and international payment incentives as well as foreign currency trading.

It can be seen that, in the foreign exchange business, most of the net profit comes from spot foreign currency trading. This corresponds to the source of income coming from the difference between the buying price and the selling price. In the second quarter of 2023, the foreign exchange rate in Vietnam was quite stable, the exchange rate between VND and USD fluctuated in a narrow range with an increase of about 0.4% compared to the beginning of the year, so it helped many banks earn high profits from this activity segment if it correctly predicts the exchange rate trend.

Currently, the USD index still maintains its strength when the US Federal Reserve (FED) shows signs of easing the interest rate hike cycle and may stop raising interest rates next year. The domestic exchange rate was also stable when the State Bank continuously cut operating interest rates, along with abundant domestic foreign currency liquidity thanks to the supply from trade surplus, remittances, disbursement of FDI capital, etc. foreign exchange reserves…

Therefore, from now until the end of the year, the foreign exchange business at banks is forecasted to remain stable, but there is still a divergence at some banks. The big winning banks often have the advantage of abundant foreign currency resources, a large customer base of import-export businesses, and a large number of customers who want to buy and sell foreign currencies...